We received a fascinating email earlier today from Bloomberg New Energy Finance entitled, "Green Shoots of Institutional Investment in Clean Energy." It looked at the "risks, challenges and barriers to increased institutional investment in clean energy," as well as signs that institutional investment in clean energy projects has begun to pick up. Here are a few key points from the email.
- Record-low interest rates following the 2008 financial crisis led to "institutional investors...searching for assets that were stable and low-risk, but that yielded appreciably more than government bonds." One promising alternative that emerged was " infrastructure investment, and specifically clean energy assets," with "yields more like 6% than the 1-4% range that has been available on 10-year German bunds, British gilts and US Treasury notes for the past few years."
- "The idea of investment by pension funds, insurance companies and wealth managers in operating-stage renewable power assets looked promising for them," and "also looked like a life-line for clean energy, at a time when established sources of finance were under pressure."
- Despite this promise, the amount of institutional investment in clean energy projects remained "modest" into 2012, when there were increasing "glimpses of green," such as Warren Buffett's "$850m bond issued to part-finance the 550MW Topaz PV project in California."
- Still, "the old challenges appeared...to be holding back any major flowering of institutional investor activity in clean energy." The three biggest challenges have been: a) size (e.g., "many institutions, especially pension funds, just do not have the resources to be able to deploy teams that understand the subtleties of investing in wind and solar projects"); b) an "unfriendly regulatory regime"(e..g, "there are no fiduciary rules forcing pension funds to take climate change or other environmental risks into account when deciding on asset allocation"); and c) "fear of retroactive policy change."
- In 2013, institutions appear to have "swallowed some of their trepidation about policy risk, and increased the pace of their investment in clean energy projects," with the biggest shift being an increase in "the pooled approach."
- The bottom line is that "the stems and even the leaves of institutional interest in renewables now seem to be emerging from the ground at last." The question is, "Will flowers follow those shoots?" To learn the answer to that question, Bloomberg New Energy Finance is holding a "Leadership Forum" in late November near London, "bring[ing] together some 60 senior executives from the different players in clean energy asset finance." It sounds fascinating, and we eagerly look forward to hearing what comes out of it!